DANISH RESEARCH UNIT FOR INDUSTRIAL DYNAMICS
DRUID Working Paper No 02-13
How do digital information good characteristics
influence pace and modalities of international market entry?
by
Volker Mahnke & Markus Venzin
How do digital information good characteristics influence pace and modalities
of international market entry?
Volker Mahnke, Department of Informatics Copenhagen Business School, Danmark -- [email protected]
Markus Venzin, Department of Strategy and Entrepreneurship
Universita Luigi Bocconi, Italy.
Abstract The paper develops theory to propose how considering digital information good characteristics modify and extends existing explanations with regard to entry mode choices (in single markets) and internationalization paths (across countries). Explanations offered relate to network and lock-in effects, complementary infrastructure investments, branding, and customer learning – factors that are particular important for understanding international market entry of digital information good providers. Key words: MNCs; entry mode; learning; digital information goods
. JEL Codes: O18, O32, L22
ISBN 87-7873-129-1
1. Introduction
Research on international expansion starting in the 1970s has focused on explaining
the slow and incremental internationalisation process of typically large manufacturing
firms (Johanson/Wiedersheim 1975, Buckley/Casson 1976, Rugman 1981, Dunning
1988, Johanson/Vahlne 1990, Andersen 1993) followed by a period of empirical
corroboration (see e.g. Coviello/McAuley 1996). Relying on organizational learning
aspects and transaction cost theory, this literature addresses determinants of entry
mode (in a single foreign market) and entry patterns (across foreign markets) such as
uncertainty, control needs, resource commitment and, most importantly, largely tacit
foreign market knowledge. Much of this literature has been developed in the context
of large firms that provide physical goods. By contrast, this paper is concerned with
the question of how the characteristics of digital information goods influence the
internationalization process of companies involved in their provision.
Interestingly, from the late 1980’s on, researchers have increasingly addressed small
firms that operated internationally early in their existence despite limited resources
and capabilities in industries including high-technology, software, art, and craft
(Sharma/Johanson 1987, Welch/Luostarinen 1988, McDougall 1989,
Oviatt/McDougall 1994, McDougall et al 1994, Bell 1995, Knight/Cavusgil 1996,
Coviello/Munro 1997, Madsen/Servais 1997, Coviello/McAuley 1999). Research on
such international new ventures1 observes accelerated internationalisation and to some
extent a more frequent use of hybrid governance structures (e.g. Joint Ventures)
during international expansion. Theoretical explanations offered for accelerated
internationalization emphasize the increasing importance of network relations,
industrial conditions, manager/entrepreneur's capabilities and mind set, and, perhaps,
1 Such companies may be called ‘born global’ (Knight/Cavusgil 1996), ‘global start up’
(Oviatt/McDougall 1994), ‘high technology start up’ (Jolly et al 1992), or 'international new ventures'
(McDougall et al. 1994). Here we adopt the latter term: 'international new venture' (INV).
2
most importantly technological change (Oviatt/McDougall 1999, Knight/Cavusgil
1997). For example, several innovations that have improved the speed and lowered
the cost of international communications would include the telegraph, the telephone,
fax machines, and most recently the Internet.
The ‘international new venture literature’ has accumulated evidence that questions
explanations and predictions of traditional literature on international expansion (see
Coviello/McAuley 1999). It also identifies factors that are instrumental in developing
a more context sensitive and comprehensive theory of the internationally expanding
firm. Unfortunately, this literature does not address the product characteristics of
digital information goods and their impact on the internationalization process of the
expanding firm. In particular, Oviatt/McDougall (1999) have recently proposed that
the several explanatory factors discussed above are increasing in importance relative
to tacit market knowledge as suggested in traditional models of internationalization.
Nonetheless, while "…firms that are committed to multinational markets from their
inception may internationalize rapidly through a simultaneous combination of
modes…we have little understanding about why combinations are chosen and which
ones are typical and successful" (Oviatt/McDougall 1999, p. 6). Thus the key
contributions of this literature may be seen in shedding new light on the pace rather
than the modalities of internationalization.
In the mid 1990’s, new firms began to commercialize technological opportunities
associated with the Internet. Yahoo!, AOL, and eBay have several things in common.
Software at their core, they make their money from the transactions or traffic that
their software enables, they provide digital information goods in several forms, they
are barely in business for a decade, and all three expanded rapidly in international
markets. For example, founded in 1993, Yahoo! is present in 24 countries overseas.
Founded in 1985 AOL became in little more than a decade the world leader in online
services and serves the largest global online community. While these are admittedly
diverse examples, they nonetheless exhibit a crucial similarity - they provide digital
information goods on an international scale.
3
In this context, perhaps most significantly, technological change may be the
foundation of a refined theory of internationalization (Oviatt/McDougall 1999). For
example, new communication technologies such as the Internet allows small firms to
become international via a website, and communication costs are reduced in
international operations (Knight/Cavusgil 1997). Internet technology makes new
forms of business possible such as the provision of digital information goods - the
focal concern of this paper. For example, web technology allows auctions to be done
in ways that are impossible in the physical world. However, as argued by
Oviatt/McDougall (1999), changing technology, while serving as a foundation, cannot
by itself explain accelerated internationalization (p.12). In this article, it is the
internationalization process of companies seeking to exploit technological
opportunities through new and innovative digital information goods on an
international scale that constitute the context for theory development. By integrating
digital good characteristics in a theory of international expansion, we respond to
Madsen/Servais (1997) who critically remark that many studies in the new
international venture literature are rather descriptive without a well-developed
theoretical frame of reference. By implication, “…further studies should be more
theory driven than the previous ones reported” (p. 580).
Building on the work of Varian/Shapiro (1999) and Bakos/Brynjolfsson (2000) on
digital information goods, the current article suggests to establish a theoretical link
between digital information good characteristics and the pace and entry modes of the
internationally expanding firm. By stressing the relevance of product characteristics in
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general2 and digital information good characteristics in particular, we use an
exploratory case study3 of eBay as an illustration and context for theory development.
We seek to highlight the key points of correspondence and discrepancy between
eBay’s internationalisation process and three literature-streams (internationalization
theory, internalization theory, and research on international new ventures) to stress the
importance of digital information goods for understanding the internationalization
process of their provider. By assessing eBay’s internationalization process against the
three perspectives, the objective is to use the company as a specific context for theory
development rather than to describe the company comprehensively. Thus, we will be
selective, stressing empirical facts that are relevant to our theoretical argument,
thereby presenting only a partial picture of the complex company.
To anticipate our argument, we will contrast eBay’s internationalization process (i)
with internationalization theory to explicate how digital information good
characteristics shed light on the company’s rapid pace of internationalization, (ii) with
internalization theory to highlight how the company’s choices of entry modes in 2 Recently, scholars have begun to address challenges of the internationalizing service firm in greater
depth (Buckley et al. 1992, Robert 1999). Although digital information goods share at times product
features with services such as intangibility and experience good character, digital information goods do
not require simultaneity of production and consumption (separability), are signified by high fixed and
low marginal costs, which is not the case for many service products, and in contrast to many services
they can be stored (non-perishability).
3 While we lack the benefits of historical hindsight as the internationalization process of the digital
good provider eBay is still ongoing and evolving, our objective is to identify and illustrate crucial
product-characteristics that influence, eventually modify, and possibly extend explanations offered in
the current international expansion literature. Yin (1994) argues that explorative case studies are
particular adequate when ’how’ and ’why’ questions are addressed and theoretical advance may be
expected from unique and contemporary events over which the investigator has little or no control
(Yin 1994). The case is built from several semi-structured interviews with company representatives and
secondary sources, such as the company’s annual reports, press releases, as well as investment reports
from UBS Warburg (23/1/01), Wassertein Parella (2/7/01), and Morgan Stanley Dean Witter (24/9/98).
Nonetheless, the case in the current context serves as context for developing theoretical arguments
only.
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alternative international markets are influenced by product characteristics, and (iii)
with the ‘new international venture’ literature to offer a complementary explanation
of rapid internationalization. The discussion shows that a more satisfying and
contextual sensitive theory of international expansion benefits from the consideration
of product characteristics to accommodate new and emergent forms of doing business
on an international scale. The remainder of this article is structured as follows.
Section 2 provides examples of digital information good providers and outlines digital
information good characteristics and their economic properties that may act as
modifiers and possibly serve to extend current internationalization theory. Section 3
contrasts eBay's internationalization process to show how the three streams of
literature that seek to explain the pace and modalities of internationalization relate to
the internationalization of digital information good providers. Section 4 discusses and
outlines key elements for a theory of internationalization of digital information good
providers. Conclusions follow.
2. Digital information good characteristics and firms’ internationalization
process
For the purpose of this article, digital information goods - from web pages offering
auctions through software, music, and movies - are broadly defined as experience
goods encoded as a string of bits (Varian/Shapiro 1999, Bakos/Brynjolfsson 2000).4
Digital information goods differ from other goods in several dimension and their
economic implication, including their experience good character, transportation costs,
(re-) production-, and product adaptation costs (see Shapiro/Varian 1999,
Bakos/Brynjolfsson 2000).
4 By implication, we are concerned with service providers such as Yahoo!, eBay, or AOL that have no
direct involvement in the provision of physical goods. While many service providers may offer mixed
goods combining digital goods with physical aspects (e.g. Amazon), for the moment being we focus on
pure plays only.
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Experience good character: Digital information goods are often experience goods,
which are signified by difficulties of consumers to evaluate such goods by sight, taste
or touch before consumption (Nelson 1970). Who after all can assess the (dis-)
pleasure of watching ’American Beauty’ or ’Jurassic Park’ lest one sees the movies?
Likewise, trading through eBay auctions is a unique experience, the value judgment
of which may depend on consumer expectation regarding speed, payment security,
number and quality of offers etc. The more frequent one trades, the more predictable
the quality of the auction experience becomes, but, nonetheless there remains
uncertainty as every new auction is a new experience.
Digital information goods often require sellers to induce buyers to acquire
information before consumption to facilitate the first experience. Various strategies to
do so involve sharing information content (e.g. free samples of software, free tunes of
a new CD via radio, a web page for the latest movie, free listing of seller items on
auction sites). Such marketing efforts are usually cheap because of low marginal costs
and effective in circumventing the experience good problem. Alternatively, branding
and advertising are more expensive possibilities, but both signal quality to customers.
By implication, in the presence of information costs, consumers may find it useful to
rely on a firm’s reputation while firms seek to induce customers through branding and
advertising. Because digital information goods are also associated with
complementary learning investments by consumers, for example in brand recognition,
there are substantial economies of scope in advertising and branding of digital
information goods. If building brands is expensive, international brand leverage is a
formidable way to reap economies of scope.
Moreover, while the internationalization process of a firm may depend on the costs
and possibilities of acquiring market knowledge (Johanson/Vahlne 1990), the cost and
possibilities of customer learning about the firm’s products may be equally important.
Once customers have learned how to use a digital information good, an auction site or
software for example, they are hesitant to switch to another one because of the hassle
of new learning. For example, to post a single antique toaster, eBay asks a minimum
of 50 questions at the start. In addition, and perhaps even more important, are the
switching costs that relate to transaction records and trader reputation in the case of
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online auctions. When switching costs lead to lock-in effects, firms have to offer a
huge advantage and/or compensate for switching costs to attract consumers from
competitors. Moreover, because attention is a limiting factor when there is abundant
information (Davenport/Beck 2001), rapid spread of digital information goods may
require advertising and fast market penetration to pre-empt attention space of
customers. In sum, the presence of information costs, customer lock-in, and
economies of scope in branding may influence the pace of international expansion and
entry modes chosen. Thus we suggest with regards to the internationalization process
of digital good providers:
P1: Digital information good providers seek to enter foreign markets through entry
modes that allow (a) control for branding and advertising strategies, and (b)
gaining access to locked-in customer bases.
Transportation costs: The digital nature of online-services allows for higher speed
and lower costs of transportation compared to physical goods. For example, unlike
agricultural goods, digital information goods do not perish or loose value during
transport. Unlike the transport of heavy physical goods, mistakes in delivery (e.g.
timing, dislocation) of digital information goods can be easily corrected and traced. In
addition, issues of storing, inventory management and logistics are of little concern to
digital information good providers. While transportation costs matter for digital
information good providers, they matter far less compared to physical good providers.
Where transportation costs are low, the need to locate facilities in proximity to
particular markets, or the need to be very selective with choices of in-market locations
may be a lesser concern. For example, whereas personal contact and local proximity
between the producer and consumer appear to be an important aspect for many
physical good providers and services (Buckley et al 1992), it does not seem to play a
decisive role in the provision of digital information goods. By implication, psychic
distance (Johanson/Vahlne 1990) may matter less because decisions on location,
storing and distribution are less important to digital good providers.
Transportation costs of digital information goods are not zero, however. Instead, they
depend on the type of information technology (hardware and software) as well as the
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telecommunication network the client and service provider are using for data transfer.
For some online services, a regular analogue voice telephony with a transmission
capacity of 56 kbps may already satisfy the needs of most clients. To increase the
speed of transfer, clients may choose to get connected with ISDN technology (56 –
128 kbps), ADSL (1.5 - 8 Mbps downstream and 12 - 500 kbps upstream), cable
modems (1.2 - 27 Mbps downstream and 128 – 10 Mbps upstream), or, with the
extreme satellite (400 kbps downstream and 56 kbps upstream via analogue voice
telephony). Further increases in transmission speed can be expected from
technological advance (e.g. UMTS). For example, streamed videos illustrating
products offered in online auctions are too slow in transmission and have a too low
quality via telephone connections. By implication, the kind of online services that can
be offered to particular clients depends on transmission capacity, speed, and costs that
are largely determined by competition among complementary services providers (e.g.
Dixit/Nalebuff 1986). In addition, constraints in available infrastructure effectively
limit market size for digital information good providers. Thus we suggest with regards
to the internationalization process of digital information good providers:
P 2: Digital information good providers select foreign markets for entry that have high
Internet penetration and advanced telecommunication infrastructure.
(Re-) production costs and competitive dynamics: Digital information goods are often
costly to produce but cheap to reproduce (Arrow 1997).5 A movie costs hundreds of
million US dollars to produce, but only little to copy on video and even less when
distributed through streaming technology over the Internet. Likewise, software, news,
and auction sites exhibit relatively high fix costs much of which are sunk and low
marginal cost of re-production. To be sure, digital information good providers have to
make capacity investments in hardware and software that also depend on the traffic
volumes on websites. But marginal costs of serving additional users and the traffic
they cause are low compared to required up front investments. High fixed costs and 5 Conversely, Aharoni (1996) finds one of the biggest differences between a physical good and a
service is the fact that services very often are based on human resources (people-intensive) and in
general they demand minimal investment in fixed assets.
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negligible marginal costs provide a vast potential for economies of scale in production
of digital information goods. Physical goods by contrast usually exhibit “diminishing
returns to scale”, because from a certain point up, unit costs tend to rise. Thus, the
cost structure of digital information good providers may also provide a powerful
incentive to penetrate markets rapidly for reasons of minimum efficient scale.
Not only are digital information goods subject to supply side economies of scale, they
often also exhibit demand side economies of scale or network effects - “the utility that
a user derives from consumption of a good increases with the number of other agents
consuming the good.” (Katz/Shapiro 1985, p: 424). For example, the benefit of any
particular user of eBay's online auction increases with the number of other users.
Likewise, the value of software packages increases as more people use them. While
other than digital information good providers may also enjoy network effects in
businesses such as gas, electricity, or telecommunication, they are more prevalent in
digital information goods because of their cost structure.
Combination of demand-side and supply-side economies of scale can lead to very
powerful market positions of digital information good providers. This is because
higher sales reduce total production costs per unit and at the same time also make the
product even more valuable to current and new users. If this is the case, there is
substantial potential for first mover advantages that may lead, in the extreme, to
temporary monopolies in particular markets (Lieberman/Montgomery 1998,
Liebowitz/Margolis 1999). Network effects, customer lock-in, and scale effects in
productions can act as entry barriers to lock out late moving competitors from
particular markets.
Competitive dynamics work with accelerated speed in product market for digital
information goods because imitation barriers (Rumelt/Lippman 1982) are low. To the
extent that digital information goods are easy to re-produce, they may be also easy to
copy by competitors if they rest on common knowledge. Estimates of damages due to
illegal copying of software amounted to US $ 11 billion in 1998. To replicate music
stored in string of bits takes little more than a piece of software (e.g. witness recent
law suits between Napster and the music industry), while imitating a complex
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physical good often takes years of effort. Likewise, to imitate an auction format is
relatively easy compared to replicating complex machinery. By implications,
sustainable competitive advantage is unlikely to stem from particular product features
(e.g. particular auction formats that may be easy to copy) or from general IT skills in
programming that are widely available. This, in turn, stresses the relative importance
of other sources of competitive advantage such as branding, management of the client
base, and network effects in markets for digital information goods. Thus we suggest
with regards to the internationalization process of digital information good providers:
P3: Digital information good providers seek to penetrate foreign markets rapidly and
through entry modes that allow them to benefit from economies of scale in
production and demand (network effects), as well as industrial networks.
Product adaptation costs and versioning: Because marginal costs of re-producing
information goods are low, cost-based pricing schemes find their limits. For digital
information good providers, however, product versioning and product adaptations can
be cheaper and faster achieved. This opens up new pricing and marketing possibilities
based on perceived customer value. Possibilities, as Bakos/Brynjolfsson (1999)
suggest, include time based versioning (e.g. movie producers sell movies at a higher
price to cineastes and latter for a lower price to less interested consumers), dis-
aggregation of previously packaged information content (such as separating
specialized news from previously aggregated news papers or journal articles),
bundling of information according to consumers interest (e.g. information services
like Reuters and Forester offer tailor made information packages that are sold to
different industry segments), as well as rapid product adaptation according to instant
consumer feedback (e.g. adapting or adding an auction category to a web site is far
easier relative to changing a product design of specialized machinery).
Data on customers can also be exploited far more readily by digital information good
providers for product adaptation in addition to the possibility of selling such data. For
example, eBay charges final value fees for each successful transaction, has customer
feedback forums, and monitors online transactions. These can be used for real-time
learning about customer preferences and product adaptation because transactions can
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be easily tracked at low costs (e.g. through collaborative filtering technologies). Low
cost of learning for product adaptation is facilitated not just by monitoring transaction
quantities, but also through monitoring web pages customers visit, how much time
they spend there and what fields they click on. This can produce customer data that is
almost instantly available and allow rapid change of product specifications and
features. By contrast, providers of physical goods usually utilize more expensive and
slower methods such as surveys, interviews, sales force reports to gather customer
feedback. By implication, when gathering customer feedback is cheap, and product
features are easy to adapt, digital information good providers face lower costs of
experimenting with product designs and real time learning for product adaptation
compared to physical good providers. Thus we suggest with regards to the
internationalization process of digital information good providers:
P4: Digital information good providers enter foreign markets more rapidly than
physical good providers because of the possibility of low learning costs and rapid
post-entry product adaptations.
3. eBay's internationalization process in three perspectives
To explain the importance of product characteristics in general and digital information
good characteristics with particular reference to the internationalization process of the
expanding firm, the following section highlights key points of correspondence and
discrepancy between eBay’s internationalization process and three literature-streams:
internationalization theory, internalization theory, and research on international new
ventures. Focus is on international expansion patterns (across countries) and entry
mode choices (in single foreign markets). Our product-characteristics based
explanations may appear as a difference of degree rather than in kind relative to
existing literature. Nonetheless, we hope to show that a theory of international
expansion benefits from the consideration of product characteristics to accommodate
new and emergent forms of doing business on an international scale.
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The internationalization process of eBay
eBay is a digital information good provider and pioneered online person-to-person
trading by developing a web based community in which buyers and sellers are
brought together in an efficient and entertaining web based auction format in a way
not possible before Internet technology. Its web-based auction-style shopping
platform facilitates a marketplace for products ranging from collectible items, such as
antiques, coins and memorabilia, to automobiles and fine art. Sellers from around the
world - individuals as well as small businesses - have used the auctions to enter vast
markets far beyond their local reach. For example, a rare record dealer in Omaha
using a web auction can sell his hard-to-find Frank Sinatra LPs from bidders in Paris
or Moscow or Hong Kong, or a Belgian camera dealer can auction his antique lenses
to a photography buff in London or Atlanta or Manila. Nonetheless, the main share of
trade is conducted within countries (90%) rather than across the countries (10%) in
which eBay has established as presence.
In essence, however, eBay is no more than software on a web server accompanied by
a strong brand. Leaving inventory carrying costs, distribution risks, vendor
management issues to those who participate in auctions, it has created a web based
business model that shows that the web can create efficient markets where none
existed before. Sellers pay the company for the privilege of setting up their own
auctions, buyers use eBay’s software to place bids. When the auction is over, the
seller and the winning bidder negotiate payment and shipping between them, eBay
never touches the goods. For this matchmaking service, eBay takes between 7% and
8% of the sale price. In addition, the company begins charging listing fees 9-12 month
after launching a site in a particular location or a new category. Most of the value that
eBay realizes from its transactions is in the final value fee. While the amount may be
small, incremental revenues without corresponding incremental costs fall straight to
the bottom line. High yields accompanied by stock issues in 1998 and 1999, provided
substantial financial pockets for rapid international expansion. Founded in 1995, eBay
in addition to the U.S. marketplace has expanded its platform internationally,
operating country sites in fifteen international markets including Germany, France,
Taiwan, Austria, Switzerland, U.K., Italy, Australia, Korea, and New Zealand.
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Internationalization of eBay has been initiated in late 1998, partly motivated by
increasing competition by Amazon, Yahoo!, FairMarket, AuctionWatch, and
Microsoft in the still growing home market. International expansion has since then
evolved rapidly through growing user communities from the ground up, acquisition of
local organizations, and partnership with local companies. Today eBay operates the
world’s leading trading community and marketplace on the Internet. In addition to
eBay’s U.S. marketplace, which includes specialized local and regional communities,
eBay has expanded its platform internationally, operating country sites in fifteen
international markets including Germany, France, Austria, Switzerland, U.K., Italy,
Australia, Korea, Taiwan, and New Zealand.
In late 1998, eBay’s efforts to expand internationally into Canada and the United
Kingdom relied on building new user communities. The first step in establishing these
communities was creating customized pages for users in those countries. These home
pages were designed to provide content and categories locally customized to the needs
of users in specific countries, while providing them with access to a global trading
community based on eBay’s infrastructure systems. Local customization in the United
Kingdom was facilitated through the use of local management, grassroots and online
marketing, and participation in local events. In February 1999, eBay partnered with
PBL Online, a leading Internet company in Australia, to offer a customized Australian
and New Zealand eBay home page. When the site went live in October 1999,
transactions were denominated in Australian dollars and, while buyers could bid on
auctions anywhere in the world, they could also search for items located exclusively
in Australia. Further, local chat boards were designed to facilitate interaction between
Australian users, and country-specific categories, such as Australian coins and stamps
as well as cricket and rugby memorabilia, were offered. In June 1999 eBay acquired
Germany's largest online person-to-person trading site, alando.de AG for US $ 50
million in stocks that had good traffic, but little revenue. eBay's management handled
the transition of service in a manner calculated to be smooth and painless for
alando.de AG's users while users would have to comply with eBay rules and
regulations. The only significant change for alando.de AG's 50,000 registered users,
was that of being automatically transferred to eBay’s URL to transact their business.
Only a year after crossing the Atlantic, eBay conquered Germany and erased the lead
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of Britain's QXL.com PLC, a British competitor. It started heading into France to take
on iBazar, France’s top auction site during spring 2001.
Although eBay opened a French site in 2000, capturing substantial market share in
France as Europe’s third largest online commerce markets has been impeded as
iBazar - a leading provider of online trading services in Europe and Brazil - had
anticipated eBay’s arrival and acquired the domain name eBay.fr in 1998. The battle
for supremacy in Europe’s on-line auction market may have been decided in spring
2001 when eBay agreed to pay US $ 112 million in stock for iBazar bringing together
two established web auction sites under a single strong brand in Europe. For the time
being, iBazar is not expected to contribute to profits in the short term as most of its
local sites will continue to work separately, while eBay works on system integration
and implementing listing fees. Similar to eBay’s acquisition of alando.de, the national
brand will be maintained in the short term to leverage local brand recognition before
eventually converting it to the eBay name. Through iBazar’s acquisition, eBay has
gained market leadership in Belgium, Brazil, Netherlands, Portugal, Spain, France,
Italy, and Sweden, adding further to eBay’s market leadership position in Australia,
Canada, Germany, Korea and the U.K..
Doing business in Europe has been complicated, however. In the U.S., four million
auction participants each day can pay online through credit card or electronic check as
a direct debit. For merchants, credit cards are expensive, but with direct debit, where a
buyer authorizes a payment directly from a checking account, costs are small. The
alternative is mailing a money order. With its one-third ownership of Billpoint, Wells
Fargo is the bank that clears the eBay buyer's electronic check requests through what
is called the Automated Clearing House (ACH), the network shared by thousands of
U.S. banks and the U.S. government. There is no shared European ACH-style
network, despite attempts by the European Union (EU) to encourage the banks across
Europe to uniformly connect their proprietary networks to share direct debit
information. When banks do manage to process these electronic check requests -
which can be an uncertain and lengthy process - it can cost the customer a US $ 30
service fee, discouraging trade. Another roadblock, are the differing regulations in
European nations, despite the existence of the EU and the Euro. For instance,
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regulatory authorities in Germany historically haven't allowed an online merchant to
accept direct debit authorizations without the account holder signing a paper
document - something not required in the U.S. However, Europe is saddled with at
least 27 differing direct-debit networks, plus legal rules for ACH that differ from
country to country.
To establish an Asian presence, in February 2000 eBay formed a joint venture with
NEC to launch eBay Japan. According to the new CEO of eBay Japan, Merle
Okawara, NEC was pleased to help eBay in leveraging the tried-and-trusted eBay
business model to provide Japanese consumers with access to a global community of
active online buyers and sellers. In customizing the site to the needs of Japanese users,
eBay wrote the content exclusively in Japanese and allowed users to bid in yen. The
site had over 800 categories ranging from internationally popular categories (such as
computers, electronics, and Asian antiques) to categories with a local flavour (such as
Hello Kitty, Pokemon and pottery). The eBay Japan site also debuted a new
merchant-to-person concept known as “super shops”, which allowed consumers to bid
on items listed by companies. After two years of trying to gain market share from
Yahoo! Japan, the online auction leader in Japan, eBay decided to close its operations
in the region during spring 2002. This was somewhat of a disappointment as Japan
represents the world's second largest eCommerce market, but management has spent a
significant amount of time, effort and money in this region without gaining any
competitive stronghold against Yahoo!. The difficulties in Japan exemplify the
challenges of operating internationally, as well as the high barriers to entry in the
online auction market that result from the network effect, i.e., buyers go where sellers
are and vice versa. The company conceded that it also stumbled in executing its
strategy in the market by not sufficiently adapting the eBay Japan site for the Japanese
market and lacking network economies.
In early 2001, by taking advantage of low share prices of Asian clones, eBay entered
Korea, through establishing a majority stakeholder position in Internet Auctions, Ltd.,
Korea’s leading online auction site. Internet Auction Co. is Korea’s largest auction
company, with about 2.8 million users and an average of 450,000 listings. Prior to the
acquisition both Internet Auction and eBay had announced aspirations to become the
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dominant player in Asia markets including Korea, Japan, Taiwan, Hong Kong and
China. Without consolidation both companies would have competed head on.
Shareholders of Internet Auction welcomed eBay’s substantial financial means, strong
brand name, and substantial knowledge and experience in running web based auctions
that are expected to contribute to circumvent Internet Auctions system outages that
were due to computer glitches. eBay on the other hand sees the Korean market as
bridgehead to further Asian expansion and is keen to benefit from the advanced
escrow system deployed by Internet Auction as well as its strong foothold in Japan
where Internet Auction has developed relationships with Hitachi and Marubeni.
As it is working through the hard lessons it learned in the Japanese market, eBay Inc.
is putting its effort into new ventures in the Asian market. During early 2002 eBay
announced it agreed to acquire NeoCom Technology Co., Ltd., for US $ 9.5 million in
cash to enter the Taiwanese market which represents the third largest and fastest
growing eCommerce market in Asia. NeoCom is a Taiwanese operator of the auction
Web sites uBid.com.tw and Bid.com.tw, Taiwan's first two person-to-person trading
platforms were already launched in October 1998. eBay also bought a 33% interest in
EachNet.com, the leading online auction site in China. The moves further increase
eBay's presence in the Asia-Pacific area.
eBay has been aggressive in expanding in overseas markets using simultaneous entry
in several international markets. The recent additions of Korea, Italy, France, Austria,
Taiwan, and China give eBay a dominant presence in eight of the top ten international
markets outside of the U.S.. New user growth in Europe is 50% faster than the rest of
eBay, while gross merchandise sales are growing 135% faster. More importantly,
however, the company is beginning to monetize international growth by gradually
introducing standardized listing fees on all its international sites and by further
connecting its scalability IT infrastructure and systems to acquired operations abroad.
Nonetheless, eBay faces a significant amount of competition, especially as it expands
overseas, where local competitors have first mover advantages and strong local
brands. In many countries, eBay will have to compete with local companies who
understand the local market better. Thus, after a period of fast international expansion
(1999-2002) there are rising concerns whether continued expansion can be profitably
17
managed. eBay is already spending much of its sales and advertising budget overseas.
Clearly, eBay cannot hope to attract new customers and build a brand in foreign
markets as cheaply as the Internet hype allowed in the U.S. where brand building
proceeded at low costs. There are also concerns with regards to eBay's international
'growth-through-acquisition strategy' as this eliminates local competitors to leave the
company in many markets alone to build out the online auction category on a country-
by-country basis. Nonetheless, it also allowed eBay despite lacking first mover
advantage to become the leading online auction site in Europe and Asia. eBay in the perspective of the current internationalization theory
Albeit variously criticized6 there is a fairly solid core of knowledge about
international expansion represented by two established streams of literature. Stage
models of internationalization (e.g. Johanson/Wiedersheim-Paul 1975,
Johanson/Vahlne 1990) offer prediction about entry patterns (across foreign markets)
and entry mode choices (in single markets) based on theories of organizational
learning (Cyert/March 1963). The internalization theory of the MNC is concerned
with entry mode choices in single markets based on transaction cost analysis (e.g.
Williamson 1975, Hymer 1966, Buckley/Casson 1976, Rugman 1981, Dunning
1988). In both theories lacking foreign market knowledge is a central construct.
Lacking foreign market knowledge increases risk exposure to the internationally
expanding firms, to which it responds through either limited resource commitment
(stage models of internationalization) or high control modes (internalization theory).
From the late 1980’s on, the new venture literature has addressed small firms that
operated internationally early in their existence despite limited resources and
capabilities (Sharma/Johanson 1987, Welch/Luostarinen 1988, McDougall 1989,
Oviatt/McDougall 1994, McDougall et al 1994, Bell 1995, Knight/Cavusgil 1996,
Coviello/Munro 1997, Madsen/Servais 1997, Oviatt/McDougall 1999, Schrader, et al
2000). Oviatt/McDougall (1994) define such international new ventures as firms that
6 See for a critical review of stage models and entry modalities (e.g. Andersen 1993, Melin 1992,
Pedersen/Petersen 1998).
18
from their inception seek to derive significant competitive advantage from the use of
resources from and sales of outputs in multiple countries. Theoretical explanations
offered for accelerated internationalization emphasize the increasing importance of
network relations, industrial conditions, manager/entrepreneur's capabilities and mind
set, and, perhaps, most importantly technological change (Oviatt/McDougall 1999,
Knight/Cavusgil 1997) relative to difficulties of acquiring foreign market knowledge.
Even though a theoretical framework that comprehensively addresses accelerated
internationalization of new ventures, typically, small firms is lacking (Madsen/Servais
1997, Oviatt/McDougall 1999), theoretical buildings blocks and explanations have
emerged that contribute to understanding accelerated internationalisation patterns
across countries.
In the following, we consider explanations offered by the internationalisation,
internalisation, and new venture literature regarding entry mode and
internationalisation patterns and contrast them with the internationalisation process of
eBay.
Entry choices in single foreign markets
A key reason that accounts for the slow pace of increasing international resource
commitment of physical good providers is as Forsgren/Johanson (1992: 10) note:
International expansion [be it in a single markets or across markets] is inhibited by the
lack of knowledge about markets. With regards to the internationalization process of
eBay, the lack of foreign market knowledge that results in liability of foreignness
seems to have mattered. For example, eBay conceded that it stumbled in executing its
strategy in the market by not sufficiently adapting the eBay Japan site for the Japanese
market. Customizing the site to the needs of Japanese users has been attempted: eBay
wrote the content exclusively in Japanese and allowed users to bid in yen, and added
categories with a local flavour (such as Hello Kitty, Pokemon and pottery). Likewise,
difficulties in handling transactions in Europe with regards to debit collection have
complicated international expansion. This is due to the fact that there is no shared
European ACH-style network, and differing regulations in European nations despite
the existence of the EU and the Euro. Nonetheless, while complications associated
with liability of foreignness can be noted, there are also clear deviations between
19
eBay’s internationalization process and the theoretical implications that are suggested
- both in current internationalization and internalization theory with regards to entry
modes in single countries.
One implication of lacking foreign market knowledge suggested in
internationalization theory is, as authors (Johanson/Wiedersheim 1975,
Johanson/Vahlne 1990) argue, that foreign market penetration in a single market
follows a path of increasing commitment from no regular export activities through
export by agents and licensing agreements to the more commitment intensive
establishment of sales subsidiaries, joint ventures and overseas production units. As
experimental knowledge about particular markets accumulates, internationalization
theory suggests that risk exposure is attenuated and firms do escalate their resource
commitments from low to high investment intensive foreign entry modes. In other
words, if there is lacking knowledge about foreign markets, firms limit their risk
exposure through limiting resource commitments. While individual resource
commitment to particular foreign markets may require less investment for eBay (it
takes little more than setting up a few computers, install the software, and leverage a
brand) compared to physical good providers (which may require to set up production
facilities, buying land etc.), entry modes chosen by eBay hardly correspond to
theoretical predictions of internationalization literature. eBay entered the market in
the U.K. (through Greenfield investments), and Australia (through an alliance) during
1999, it also entered almost simultaneously the German market (through acquisition).
Later market presence has been established simultaneously in Canada (through
Greenfield), Japan (through a joint venture), and France (Greenfield followed by
acquisition) during 2000. Korea followed in 2001 (through acquisition). Japan has
been exited and Taiwan was entered (through acquisition) in 2002.
The internalization literature is complementary to the internationalization literature in
its concern with single entry mode decisions in particular foreign markets, but it is
mainly based on transaction cost economics (Williamson 1975, Caves 1982, Hymer
1960, Casson 1982). Like stage models of internationalization, it is suggested that a
lack of foreign market knowledge, including local habits, business rules, and language
is likely to increase risk exposure in international expansion resulting in ’liability of
20
foreignness7. However, unlike internationalization process theory which suggests that
risk exposure might be controlled by limiting resource commitments until foreign
market knowledge has been acquired, internalization theory stresses the possibility to
control expropriation risks8 through internalizing vertical activities required to do
business in foreign locations (e.g. Kogut 1988, Teece 1976, Kogut/Zander 1995,
McFetridge 1995).9
For example, liability of foreignness can cause a relative disadvantage vis-a-vis
locally established firms because the entrant faces higher (perhaps prohibitive)
coordination costs compared to companies transacting within, rather than across,
country borders. The entrant may compensate temporary disadvantages of foreignness
by other advantages including proprietary knowledge, knowledge sharing systems,
reputation and brands among other things (Buckley/Casson 1976). However, if it is
difficult to trade such assets in spot transactions or craft licensing agreement with host
country partners in vertical relations, for example, due to market failures or
imperfection (Teece, 1976, Kogut/Zander 1995, McFetridge 1995), firms may take
resort to entry modes that allow hierarchical control, including FDI (Casson 1982,
1999, Dunning 1988).10Casson (1999) adds that to the extent the MNC can more 7Main indicators used in the empirical literature on the liability of foreignness are: (a) elapsed time of
operations in the foreign market (e.g. Zaheer/Mosakowski 1997, Harkema et al 1996), (b) international
experience of the entrant firm (Erramilli 1991, forsgren/Johanson 1992), and (c) lack of knowledge
about foreign markets. 8These may be due to market imperfection that result from e.g. liability of foreignness in intermediate
product markets. 9Note that transaction cost theory in Williamson’s (1985, 1996) version is generally concerned with
vertical value chain relations where incentive alignment problems in the face of asset specific
investments is the key concern. Broader versions of information/transaction costs (Coase 1937, Casson
1982) may equally be applied to both horizontal and vertical entry mode decisions. 10 Licensing agreements involving knowledge-based assets are often less desirable when MNCs enter
new markets, for three reasons: (1). tThey may result in leakage of competitive knowledge to host
country partners, (2) the licensing firm might loose strategic control and flexibility, and (3) finally, the
underlying knowledge might be only imperfectly transferred to the licensee because managerial know
how cannot be perfectly codified (e.g. Winter 1987) causing the licensees not to exploit such
knowledge to the same extent that the originating company could (e.g. Kogut/Zander 1995;, Buckley/
Casson 1976).
21
credibly convey quality assurance through branding relative to a host country partner,
internalization of activities may also help customers overcome uncertainty about the
good in question through direct contracting with the original supplier.11In sum, the
less property right and strategic protection against misappropriation of rents to
intangible assets such as brands and reputation by foreign contracting partners is
possible, and the more important such assets are for signaling quality, the more firms
will tend to international expansion by FDI (e.g. via merger & acquisitions and
Greenfield investments) for reasons of control. Consequently, entry modes chosen by
the internationalizing firm rests on the costs and benefits of alternative governance
arrangements with firms seeking to minimize transaction costs that in turn depend on
degree of foreign market knowledge.12 The predictions of internalization theory are
partially supported in the eBay case, as liability of foreignness can be assumed to be
high in Germany, France, Korea, and Taiwan where eBay entered through high
control modes. On the other hand, where liability of foreignness can be assumed to be
relatively low such as in the U.K. and Canada, eBay choose to enter via high control
modes as well. Thus, eBay entered through high control modes in both groups (high
vs. low liability of foreignness).
11 Think of the successful branding strategies of fast food chains. The greater the uncertainty and
distrust surrounding international business, the more managers may seek control through internalizing
transaction (Coase 1937). Accordingly, to leverage its brand internationally, McDonald’s owns its
restaurants in Moscow but runs restaurants in New York City by franchising. In other words: by
pooling ownership, incentives to haggle, cheat, and default are reduced.
12 Dunning (1988) adds that commitment intensive entry modes including FDI may be explained not
only through ownership advantages of the MNC and opportunities of internalisation in intermediate
product markets, but additionally through location advantages of the host country that serve to induce
international expansion. By location advantages, Dunning means the possibility of using resource
endowments that are specific to a particular location. Firms might want to tap into local knowledge
sources, exploit low labour costs, or take advantage of physical resources. If managers believe that
location advantages can beneficially be combined with firm specific capabilities such as technological
skills, reputation, and know how, and the latter are difficult to exchange as argued above, then firms
may be required to engage in FDI.
22
In sum, the proposition that internationally expanding firms choose entry modes to
minimize transactional risks that are associated with lacking foreign market
knowledge (internalization theory) or controls for foreign country risks through
limiting resource exposure until market knowledge has been acquired
(internationalization theory) is partially supported at best. This begs the question for
alternative explanations regarding entry choices during international entry.
Unfortunately, the new venture literature offers "…little understanding about why
combinations (of particular entry modes) are chosen…" (Oviatt/McDougall, 1999: 6).
International expansion patterns across country markets
While early work in internalization theory was restricted to the internationalization
path in a single market, Johanson/Vahlne (1977, 1990) expand the explanatory reach
of the stage model to propose patterns of internationalization across a series of new
geographic markets, that may particularly well apply to early stages of
internationalization. To control for risks associated with lacking local ‘market
knowledge’, firms may tend to enter foreign markets that are similar in culture,
language, rules and norms, and business networks before they expand to foreign
markets that are increasingly dissimilar. By implication, like in individual market
entry decisions, it is through the gradual acquisition, integration and utilization of
foreign market knowledge that firms become willing to successively increase
commitments across foreign markets (Penrose 1959, Sharma 1997). To recall the
internationalization pattern of eBay: The company entered the market in the U.K.,
Australia, and Germany during 1999 followed by Canada, Japan, and France during
2000. Korea followed in 2001 (acquisition). Japan was exited, Taiwan, and China was
entered in 2002. With regards to theoretical predictions, eBay's internationalization
process started in the U.K. and Canada, e.g. countries with low psychic distance, but
then rapidly moved to countries with greater psychic distance such as Germany,
Japan, France, and Korea. So we are entitled to expect that the internationalization
path of digital information good providers may be driven by other factors than those
suggested in stage models of internationalization.
The international new venture literature addresses factors that contribute to the
understanding of 'accelerated internationalization'. First, international ventures may
23
reflect the adaptation of the Japanese keiretsu model, where the internationally
expanding small firm in mature markets follows as dependent supplier a large
international expanding firm (Dunning 1993, Johanson/ Vahlne 1990). Second, even
independent new ventures operating in niche markets may exhibit patterns of
accelerated internationalization. If firms operate in niche markets or narrow product
lines, growth objectives will be constrained by limited home demand (Luostarinen,
1989). Accordingly, international expansion might provide the only growth path
(Coviello/Munro 1997), internationalization may be required to achieve economies of
scale (Buckley/Casson 1976, Dunning, 1993), or to leverage differentiation
advantages gained at home through foreign market expansion (e.g. Oviatt/McDougall
1991, Shrader et al. 2000). In the case of eBay none of these explanations seem to
apply. First, eBay is not a dependent supplier which follows a global customer. It
targets a mass market that is still growing domestically, rather than a local niche
market contained home demand. So international expansion is not the only growth
path. Finally, while economies of scale in production might be augmented through
international expansion with regards to eBay's IT platform, eBay is hardly
differentiated from other providers of online auctions with regards to product features,
except for a powerful brand.
However, firms may also expand internationally as part of a network of personal and
industrial relation. As argued by Coviello/McAuley (1999, p. 227), the network
perspective draws on social exchange and resource dependence ideas to suggest that
"…internationalization depends on an organization's set of network relationships
rather than specific company advantages." By implication, to view a firm’s
international expansion process as independent from other industry players and
personal relations to international networks might be misleading.
Johanson/Mattsson (1988) argued that firms seek to obtain a position in an industrial
value network. If an industrial network is already internationally developed, an
international ‘late starter’ firm may be able to draw on complementary resources
through joint ventures and tap more readily into established international industrial
networks. Hence, international expansion may proceed faster, compared to firms that
operate in industries where international industry networks have not been established
24
yet. Such networks may well be instrumental for firms for rapid internationalization
because networks often allow access complementary resources to compensate for lack
of own capabilities and assets (Jolly et al 1992, McDougall et al 1994). Bell (1995) in
study of 187 small software firms from Norway, Ireland, and Finland, suggest that
networks and trends to cooperation rather than psychic distance contribute to explain
internationalization patterns. Coviello/Munro’s (1995, 1997) findings on small
software firms point in the same direction: network relations are used to externalize
market development activities.
In online auctions, eBay was an early starter that could not rely on industrial networks
developed by others with one notable exception: during 1999 eBay forged a
marketing deal with American Online (AOL), which placed eBay across AOL's
domestic and international brands, such as AOL and CompuServe, the AOL.com Web
page, and Netscape's Netcenter portal. Thus, eBay can create customized, co-branded
sites across AOL's network. At the time of the agreement AOL had established a local
presence in the U.K. and Canada (1996), France (1996), Germany (1995), and
Australia (1998) – all markets that eBay entered as well.
Personal international networks may also contribute to manager/entrepreneur's
experience and open attitude. Furthermore, individual managers with an international
mind set may have international access to social networks (e.g. Coviello/Munro 1997,
Bell 1995, Oviatt/McDougall 1994). This, in turn, can contribute to early
internationalization (Reuber/Fischer 1997, Knight/Cavusgil 1996). For example,
Sharma/Johanson (1987) argue that network relations may ‘become bridges to foreign
markets.’ If managers have acquired prior foreign market knowledge the
internationally expanding firm may not need to acquire knowledge by itself, and one
would expect faster internationalization and higher commitment modes. eBay's top
management team might have contributed to its rapid internationalization process as
well. For example CEO Meg Whitman acquired international experience in brand
building during her prior employment at Walt Disney, Procter & Gamble, and Hasbro.
Similarly, Matt Bannick, who lead market entry in France, and Korea acquired
international experience at McKinsey. Thus one may well assume that, prior
international experience might have contributed to accelerated internationalization.
25
In sum, the internationalization path across countries of eBay cannot be explained
through lacking foreign ‘market knowledge’ alone, which leads the internationally
expanding firm to enter foreign markets that are similar in culture, language, rules and
norms, and business networks before they expand to foreign markets that are
increasingly dissimilar. Explanations offered in the 'new venture literature' with
regards to top-management’s international orientation and utilization of international
networks do contribute a possible explanation of eBay’s rapid internationalization
across countries. Case evidence is sparse, however. In the following section we seek
to outline how considering product characteristics of digital information goods can
contribute to explain international expansion both with regards to internationalization
paths across countries and single market entry decisions.
4. Advancing current theory of international expansion
The analysis in the previous section concluded that current theory only partially
explains entry choice in single markets and internationalization patterns across
markets of eBay although foreign liability due to lacking foreign market knowledge
remains clearly important. This calls for refinement and extension of current
literature. This article suggests advancing current theory by integrating product
characteristics of digital goods as an important variable in the explanation of entry
modes and internationalization patterns. The integration of product characteristics
contributes to the understanding of international expansion in two ways. First, they
modify existing predictions, and second, they suggest new predictions that cannot be
reduced to arguments in the existing literature.
26
Single market entry : the influence of digital good characteristics
Digital information good providers seek to enter foreign markets through entry modes
that allow control in branding and advertising strategies that are necessary because of
the experience character of digital information goods. While we have argued that
liability of foreignness matters in the internationalization process of digital good
providers, learning of customers about the products of the foreign firm may equally
matter, and perhaps even more than learning of the firm about a particular market.
Thus entry modes may be chosen to seek control regarding possibilities of customer
education rather than overcoming the hazards of liability of foreignness. By
implication, an advanced theory of international expansion benefits from recognising
liability of foreignness as a bilateral concept: Both customers and the foreign entrant
engage in learning during market entry. While building a brand is important for
reasons of customer lock-in that facilitates network effects, and high control modes
may be chosen accordingly, seeking high control modes through M&A may also lead
to a dilemma for digital information good providers such as eBay. By gaining control,
competitors are eliminated that may be instrumental to educate customers about
innovative product and services during the creation of new international markets.
While the product characteristics based predictions regarding high control modes may
coincide with predictions taken from internalization theory when liability of
foreignness is high (which makes contractual hazards a more likely case), our
argument must not refer to expropriation hazards that are due to liability of
foreignness in vertical relations. Instead, when choosing high control modes in
markets for digital information goods that exhibit, for example, low liability of
foreignness (which makes expropriation hazards a less likely case), the internationally
expanding firm might want to keep control over branding, because customer learning
that is facilitated by branding is crucial to succeed in the market. Thus, a theory of
entry mode choice in single foreign markets that relates to digital good characteristics
(e.g. experience good character, lock-in, and network effects) can explain why high
control modes are chosen during market entry, even if there is low liability of
foreignness and expropriation hazards are less of a concern.
27
An alternative explanation for high control modes is possible even if one concurs with
the arguments of internalization theory that firms respond to expropriation hazards by
internalizing transactions. Shrader et al (2000) suggested recently that firms might
trade-off risks associated with international expansion such as risks associated with
liability of foreignness and the risk related to entry modes. Integrating a foreign firm
into another organization is particularly tricky as suggested in the literature on post-
merger integration (e.g. Capron et al 1999). Thus the foreign entrant may compare
transaction risks (which internalization theory addresses) with post-merger integration
risks (that it neglects). Digital good characteristics influence this risk trade off,
however, as digital information good providers operate in markets with demand side
economies of scale. Where network effects are present, a late entrant in particular
foreign market faces an additional risk trade-off: incurring post-merger integration
risks or loosing the market completely on the other (witness the failed attempt of eBay
to gain traction in Japan against the market leader Yahoo!). In fact, as a late entrant, it
is hard to imagine how low commitment modes (e.g. licensing) may give access to an
installed client base because the incumbent will either fight or sell the client base,
most likely by selling the whole company. In sum, digital information good providers
seek to penetrate foreign markets rapidly and through entry modes that allow them to
reap economies of scale in production, to benefit from network effects, as well as to
control branding.
In the analysis above we have also noted that international entry of eBay in single
country markets does not follow an incremental process of increasing commitment as
market uncertainties are resolved through the acquisition of local market knowledge
as suggested in internationalisation theory. To be sure, the new venture literature
suggests, as was the case with eBay, that a management team that has acquired
foreign market knowledge up front, may make more commitment intensive entry
modes possible. In other words: learning about foreign markets takes place before a
focal company engages in international expansion. A complementary explanation has
to do, of course, with the already above discussed network effects, but, in addition one
characteristic of digital information goods alters predictions of current
internationalization theory: possibilities of cheap learning about customer preferences
for product adaptation after market entry. When costs of gathering customer data and
28
learning about customer preferences are low in comparison to physical good
providers, liability of foreignness becomes less of an issue in retarding resource
commitment. This is because it can be faster and cheaper dealt with through new
methods of learning that a digital good provider can use to greater extend than a
physical good provider.
Moreover, required resource commitment in absolute value may be less for digital
good providers compared to physical good providers, at least as far a Greenfield
investment is concerned (e.g. high control and high commitment mode). Note in this
context, that control to achieve transaction efficiency may be associated with high
resource commitment (e.g. M&A or Greenfield) as suggested in internationalization
theory, but this is not always the case. First, as far as digital information good
providers are concerned, high control modes may not coincide with high resource
commitments. Market entry for a digital information good provider may mean no
more than to buy a domain name, hire some marketing people, and set up servers that
run local traffic. Second, there are substitutes for ownership in achieving control such
as network governance (e.g. Holmstrom/Roberts 1998, Larsen 1992) during
international market entry. Greenfield investments and M&A may also require less
resource commitment relative to joint ventures with opportunistic or incapable
partners in foreign markets - at least in the long run (e.g. Prahalad/Hamel 1989.)
Digital product characteristics and patterns of firms’ expansion across markets
Digital information good providers seem to deviate from a slow and incremental
international expansion process across countries. As suggested in the new venture
literature, they seek to create value abroad early in their existence (Oviatt/McDougall
1994). The explanations offered for ‘accelerated internationalization’ in the ‘new
venture literature’ regarding prior experience of the management team, as well as
possible co-operations with network partners have played a role in our case
illustration. However, including product characteristics of digital information goods in
the analysis of accelerated internationalization provides additional force to recent
arguments that technological change and its implications become relatively more
important relative to risk arguments that relate to the slow acquisition of tacit market
29
knowledge. With regards to the increasing importance of technological advance
relative to tacit foreign market knowledge (Oviatt/McDougall 1999), our analysis of
digital information goods suggests that foreign market entry across countries may
proceed more rapidly than those of physical good providers. This is because post-
entry product adaptations are possible and exhibit low costs. As was the case with
single market entry mode choices, where learning for local adaptation can be achieved
cheaply and rapidly through gathering data about customer preferences, the retarding
force of lacking market knowledge is weakened both in a single, but also across
foreign markets.
While transportation costs matter for digital information good providers, they matter
far less compared to physical good providers. Digital information costs have lower
costs of transportation compared to physical goods, their providers need not be very
selective with choices of in-market locations. Issues of storing, inventory management
and logistics are of little concern to digital information good providers when making
location decisions. Thus, liability of foreignness might be less pronounced regarding
such issues.
Digital information good providers, such as eBay, seem to select foreign markets for
entry that have high Internet penetration and advanced telecommunication
infrastructures. This is because the availability and costs of such complimentary
services influence the demand of digital goods providers. For example, Canada,
Germany, and Korea have well developed infrastructures that allow a strongly
growing customer base to participate in online auction. So what may look as random
patterns of market selection in the internationalization path of eBay, might be strongly
influenced by available infrastructure and its costs to users in selected countries. In
other words, international expansion across countries is driven by market selection
according to market size and growth, which is effectively constrained by costs and
possibilities to access the services of digital information good providers. By
implication, digital information good providers seek to enter foreign markets first that
have high Internet penetration and advanced telecommunication infrastructures (e.g.
providers of complementary assets).
30
Moreover, as argued above, building brands for new categories of digital information
goods, while crucial in markets where information costs are high, is also expensive.
Online-auction provision constitutes a new industry and where no strong local brands
existed, there was little possibility for eBay but to build a brand and create a market
on its own. However, in markets where strong local competitors have already created
a market for online auctions, as was the case in Germany, France, Korea, and Taiwan,
the possibility for eBay to take advantage of high share prices to enter the market via
mergers may have been the best option to gain market leadership despite the obvious
difficulties of entering a foreign market as a second mover. In other words, saving on
costs of market development and buying into the business of the first mover who has
already an installed customer base, might have driven market selection in the case of
eBay far more than concerns that relate to the liability of foreignness. In sum, psychic
distance matters less when digital good providers select markets according to market
size and growth, complementary infrastructure investments by others, competitor
presence during market development, and availability of strong acquisition targets
that allow brand leverage due to a large installed customer base. These factors may be
far more important to achieve network effects and economies of scale in production in
particular markets that the digital good provider might want to serve.
Finally, while the market for online auctions seems to develop rapidly as more and
more countries provide for needed complementary infrastructure at low costs, market
development does not work with the same pace across all foreign countries. Particular
markets may be selected as an option and bridgehead for further expansion when a
local provider (e.g. iBazar in France, Internet Auction in Korea) that eBay purchased
engaged in market development activities in countries that will develop to full market
size once market development becomes less constrained due to lacking infrastructure,
customer learning, or Internet penetration. Seen this way, the internationalization path
of eBay looks less random. Market selection is driven by option values that are
associated with an installed base of customers as well as the possibility to expand into
third countries.
31
5. Conclusions
The paper illustrates and advocates the integration of good characteristics in general
and digital information good characteristics (experience good character, transportation
costs, (re-) production-, and product adaptation costs) in particular as an important
element in the explanation of international expansion. It develops theory to propose
how considering digital good characteristics modifies and extends existing
explanations with regard to entry mode choices (in single markets) and
internationalization path (across countries). Explanations offered relate to network
effects, lock-in, complementary infrastructure investments, branding and customer
learning that are particularly pronounced in international markets for digital
information goods. Thus, the paper contributes to advance a more comprehensive and
contextually sensitive theory of the internationalizing firm that is especially relevant
for companies that seek to take advantage of technological advance through the
provision of digital information goods. The paper demonstrates how the explanations
of stage models of internationalization, internalization theory, and international new
venture research relate to the internationalization of digital information good
providers. An explorative case study on eBay’s internationalization process served as
context for theory development to illustrate the need for, and possibilities of,
integrating product characteristics of digital information goods in particular.
However, eBay is a pure digital information good provider, but many companies build
their business by packaging digital information goods and physical elements in the
services they offer (e.g. book retailing, banking etc). A crucial question for future
empirical research is therefore how mixed good characteristics influence the
internalization process of the expanding firm.
32
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Danish Research Unit for Industrial Dynamics
The Research Programme
The DRUID-research programme is organised in 3 different research themes: - The firm as a learning organisation - Competence building and inter-firm dynamics - The learning economy and the competitiveness of systems of innovation
In each of the three areas there is one strategic theoretical and one central empirical and policy oriented orientation.
Theme A: The firm as a learning organisation
The theoretical perspective confronts and combines the resource-based view (Penrose, 1959) with recent approaches where the focus is on learning and the dynamic capabilities of the firm (Dosi, Teece and Winter, 1992). The aim of this theoretical work is to develop an analytical understanding of the firm as a learning organisation.
The empirical and policy issues relate to the nexus technology, productivity, organisational change and human resources. More insight in the dynamic interplay between these factors at the level of the firm is crucial to understand international differences in performance at the macro level in terms of economic growth and employment.
Theme B: Competence building and inter-firm dynamics
The theoretical perspective relates to the dynamics of the inter-firm division of labour and the formation of network relationships between firms. An attempt will be made to develop evolutionary models with Schumpeterian innovations as the motor driving a Marshallian evolution of the division of labour.
The empirical and policy issues relate the formation of knowledge-intensive regional and sectoral networks of firms to competitiveness and structural change. Data on the structure of production will be combined with indicators of knowledge and learning. IO-matrixes which include flows of knowledge and new technologies will be developed and supplemented by data from case-studies and questionnaires.
Theme C: The learning economy and the competitiveness of systems of innovation.
The third theme aims at a stronger conceptual and theoretical base for new concepts such as 'systems of innovation' and 'the learning economy' and to link these concepts to the ecological dimension. The focus is on the interaction between institutional and technical change in a specified geographical space. An attempt will be made to synthesise theories of economic development emphasising the role of science based-sectors with those emphasising learning-by-producing and the growing knowledge-intensity of all economic activities.
The main empirical and policy issues are related to changes in the local dimensions of innovation and learning. What remains of the relative autonomy of national systems of innovation? Is there a tendency towards convergence or divergence in the specialisation in trade, production, innovation and in the knowledge base itself when we compare regions and nations?
The Ph.D.-programme
There are at present more than 10 Ph.D.-students working in close connection to the DRUID research programme. DRUID organises regularly specific Ph.D-activities such as workshops, seminars and courses, often in a co-operation with other Danish or international institutes. Also important is the role of DRUID as an environment which stimulates the Ph.D.-students to become creative and effective. This involves several elements:
- access to the international network in the form of visiting fellows and visits at the sister institutions
- participation in research projects - access to supervision of theses - access to databases Each year DRUID welcomes a limited number of foreign Ph.D.-students who wants to work on subjects and project close to the core of the DRUID-research programme.
External projects
DRUID-members are involved in projects with external support. One major project which covers several of the elements of the research programme is DISKO; a comparative analysis of the Danish Innovation System; and there are several projects involving international co-operation within EU's 4th Framework Programme. DRUID is open to host other projects as far as they fall within its research profile. Special attention is given to the communication of research results from such projects to a wide set of social actors and policy makers.
DRUID Working Papers
96-1 Lundvall, Bengt-Åke: The Social Dimension of the Learning Economy.
(ISBN 87-7873-000-7) 96-2 Foss, Nicolai J.: Firms, Incomplete Contracts and Organizational Learning.
(ISBN 87-7873-001-5) 96-3 Dalum, Bent and Villumsen, Gert: Are OECD Export Specialisation
Patterns Sticky?’ Relations to the Convergence-Divergence Debate. (ISBN 87-7873-002-3)
96-4 Foss, Nicolai J: Austrian and Post-Marshallian Economics: The Bridging
Work of George Richardson. (ISBN 87-7873-003-1) 96-5 Andersen, Esben S., Jensen, Anne K., Madsen, Lars and Jørgensen,
Martin: The Nelson and Winter Models Revisited: Prototypes for Computer-Based Reconstruction of Schumpeterian Competition. (ISBN 87-7873-005-8)
96-6 Maskell, Peter: Learning in the village economy of Denmark. The role of
institutions and policy in sustaining competitiveness. (ISBN 87-7873-006-6) 96-7 Foss, Nicolai J. & Christensen, Jens Frøslev: A Process Approach to
Corporate Coherence. (ISBN 87-7873-007-4) 96-8 Foss, Nicolai J.: Capabilities and the Theory of the Firm. (ISBN 87-7873-
008-2) 96-9 Foss, Kirsten: A transaction cost perspective on the influence of standards on
product development: Examples from the fruit and vegetable market. (ISBN 87-7873-009-0)
96-10 Richardson, George B.: Competition, Innovation and Increasing Returns.
(ISBN 87-7873-010-4) 96-11 Maskell, Peter: Localised low-tech learning in the furniture industry.
(ISBN 87-7873-011-2) 96-12 Laursen, Keld: The Impact of Technological Opportunity on the Dynamics
of Trade Performance. (ISBN 87-7873-012-0)
96-13 Andersen, Esben S.: The Evolution of an Industrial Sector with a Varying
Degree of Roundaboutness of Production. (ISBN 87-7873-013-9) 96-14 Dalum, Bent, Laursen, Keld & Villumsen, Gert: The Long Term
Development of OECD Export Specialisation Patterns: De-specialisation and “Stickiness”. (ISBN 87-7873-014-7)
96-15 Foss, Nicolai J.: Thorstein B. Veblen: Precursor of the Competence-Based
Approach to the Firm. (ISBN 87-7873-015-5) 96-16 Gjerding, Allan Næs: Organisational innovation in the Danish private
business sector. (ISBN 87-7873-016-3) 96-17 Lund, Reinhard & Gjerding, Allan Næs: The flexible company Innovation,
work organisation and human ressource management. (ISBN 87-7873-017-1) 97-1 Foss, Nicolai J.: The Resource-Based Perspective: An Assessment and
Diagnosis of Problems. (ISBN 87-7873-019-8) 97-2 Langlois, Richard N. & Foss, Nicolai J.: Capabilities and Governance: the
Rebirth of Production in the Theory of Economic Organization. (ISBN 87-7873-020-1)
97-3 Ernst, Dieter: Partners for the China Circle? The Asian Production Networks
of Japanese Electronics Firms. (ISBN 87-7873-022-8) 97-4 Richardson, George B.: Economic Analysis, Public Policy and the Software
Industry. (ISBN 87-7873-023-6) 97-5 Borrus, Michael & Zysman, John: You Don’t Have to Be A Giant: How
The Changing Terms of Competition in Global Markets are Creating New Possibilities For Danish Companies. (ISBN 87-7873-024-4)
97-6 Teubal, Morris.: Restructuring and Embeddeness of Business Enterprises-
Towards an Innovation System Perspective on Diffusion Policy. (ISBN 87-7873-025-2)
97-7 Ernst, Dieter & Guerrieri, Paolo: International Production Networks and
Changing Trade Patterns in East Asia: The case of the Electronics Industry. (ISBN 87-7873-026-0)
97-8 Lazaric, Nathalie & Marengo, Luigi: Towards a Characterisation of Assets
and Knowledge Created in Technological Agreements: Some evidence from the automobile-robotics sector. (ISBN 87-7873-027-9)
97-9 Ernst, Dieter.: High-Tech Competition Puzzles. How Globalization Affects
Firm Behavior and Market Structure in the Electronics Industry. (ISBN 87-7873-028-7)
97-10 Foss, Nicolai J.: Equilibrium vs Evolution in the Resource-Based
Perspective: The Conflicting Legacies of Demsetz and Penrose. (ISBN 87-7873-029-5)
97-11 Foss, Nicolai J.: Incomplete Contracts and Economic Organisation: Brian
Loasby and the Theory of the firm. (ISBN 87-7873-030-9) 97-12 Ernst, Dieter & Lundvall, Bengt-Åke: Information Technology in The
Learning Economy – Challenges for Developing Countries. (ISBN 87-7873-031-7)
97-13 Kristensen, Frank Skov (p): A study of four organisations in different
competitive environments. (ISBN 87-7873-032-5) 97-14 Drejer, Ina, (p) Kristensen, Frank Skov (p) & Laursen, Keld (p): Studies
of Clusters as a Basis for Industrial and Technology Policy in the Danish Economy. (ISBN 87-7873-033-3)
97-15 Laursen, Keld (p) & Drejer, Ina (p): Do Inter-sectoral Linkages Matter for
International Export Specialisation? (ISBN 87-7873-034-1) 97-16 Lundvall, Bengt-Åke & Kristensen, Frank Skov (p): Organisational
change, innovation and human resource Development as a response to increased competition. (ISBN 87-7873-036-8)
98-1 Præst, Mette (p): An Empirical Model of Firm Behaviour: A dynamic
Approach to Competence Accumulation and Strategic Behaviour. (ISBN 87-7873-037-6)
98-2 Ducatel, Ken: Learning and skills in the Knowledge Economy. (ISBN 87-
7873-038-4) 98-3 Ernst, Dieter: What Permits Small Firms to Compete in High-Tech
Industries? Inter-Organizational Knowledge Creation in the Taiwanese Computer Industry. (ISBN 87-7873-039-2)
98-4 Christensen, Jens Frøslev: The Dynamics of the Diversified Corporation
and the Role of Central Management of Technology. (ISBN 87-7873-040-6) 98-5 Valente, Marco (p): Laboratory for Simulation Development. (ISBN 87-
7873-041-4) 98-6 Valente, Marco (p): Technological Competition: a Qualitative Product Life
Cycle. (ISBN 87-7873-042-2) 98-7 Lam, Alice: The Social Embeddedness of Knowledege: Problems of
Knowledge Sharing and Organisational Learning in International High-Technology Ventures. (ISBN 87-7873-043-0)
98-8 Jørgensen, Kenneth M. (p): Information Technology and Change in Danish
Organizations. (ISBN 87-7873-044-9) 98-9 Andersen, Esben Sloth: Escaping Satiation in an Evolutionary Model of
Structural economic Dynamics. (ISBN 87-7873-045-7) 98-10 Foss, Kirsten: Technological Interdependencies, Specialization and
Coordination: A Property Rights Perspective on The Nature of the Firm. (ISBN 87-7873-046-5)
98-11 Andersen, Poul H: Organizing International Technological Collaboration in
Subcontractor Relationships. An Investigation of the Knowledge-Stickyness Problem. (ISBN 87-7873-047-3)
98-12 Nymark, Søren (p): Billeder af strategi i forandringsrige organisatoriske
omgivelser: 3 cases fra DISKO studierne. (ISBN 87-7873-048-1) 98-13 Andersen, Esben Sloth: The Evolution of the Organisation of Industry.
(ISBN 87-7873-050-3) 98-14 Foss, Kirsten & Foss, Nicolai J.: The Market Process and The Firm:
Toward a Dynamic Property Rights Perspective. (ISBN 87-7873-051-1) 98-15 Lorenz, Edward: Societal Effects and the Transfer of Business Practices to
Britain and France. (ISBN 87-7873-053-8) 98-16 Ernst, Dieter: Catching-Up, Crisis and Industrial Upgrading. Evolutionary
Aspects of Technological Learning in Korea's Electronics Industry. (ISBN 87-7873-054-6)
98-17 Kaisla, Jukka (p): The Market Process and the Emergence of the Firm:
Some Indications of Entrepreneurship Under Genuine Uncertainty. (ISBN 87-7873-055-4)
98-18 Laursen, Keld (p): Do Export and Technological Specialisation Patterns
Co-evolve in Terms of Convergence or Divergence?: Evidence from 19 OECD Countries, 1971-1991. (ISBN 87-7873-056-2)
98-19 Foss, Nicolai J.: Firms and the Coordination of Knowledge: Some Austrian
Insights. (ISBN 87-7873-057-0) 98-20 Mahnke, Volker (p) & Aadne, John Harald: Process of Strategic Renewal,
Competencies, and the Management of Speed. (ISBN 87-7873-058-9)
98-21 Lorenzen, Mark (p): Information, cost learning, and trust. Lessons form co-
operation and higher-order capabilities amongst geographically proximate firms. (ISBN 87-7873-059-7)
98-22 Lam, Alice: Tacit Knowledge, Organisational Learning and Innovation: A
Societal Perspective. (ISBN 87-7873-060-0) 98-23 Lund, Reinhard: Organizational and innovative flexibility mechanisms and
their impact upon organizational effectiveness. (ISBN 87-7873-061-9) 98-24 Christensen, Jesper Lindgaard & Drejer, Ina (p): Finance and Innovation
System or Chaos. (ISBN 87-7873-062-7) 98-25 Laursen, Keld (p): How Structural Change Differs, and Why it Matters (for
Economic Growth) (ISBN 87-7873-063-5) 98-26 Holmén, Magnus & Jacobsson, Staffan: A method for identifying actors in
a knowledge based cluser. (ISBN 87-7873-064-3) 98-27 Richardson, G. B.: Production, Planning and Prices. (ISBN 87-7873-065-1) 98-28 Foss, Nicolai J.: Austrian Economics and Game Theory: a Preliminary
Methodological Stocktaking. (ISBN 87-7873-067-8) 98-29 Foss, Nicolai J. & Mahnke, Volker (p): Strategy Research and the Market
Process Perspective. (ISBN 87-7873-068-6) 98-30 Laursen, Keld (p): Revealed Comparative Advantage and the Alternatives
as Measures of International Specialisation. (ISBN 87-7873-069-4) 99-1 Lorenz, E.: Organisationaal Innovation, Governance Structure and
Innovative Capacity In British and French Industry. (ISBN 87-7873-070-8) 99-2 Ernst, Dieter: Responses to the Crisis: Constraints to a Rapid Trade
Adjustment in East Asia's Electronics Industry. (ISBN 87-7873-071-6) 99-3 Foss, N. J. : Understanding Leadership: A Coordination Theory. (ISBN 87-
7873-072-4) 99-4 Foss, K & Foss, N. J: Understanding Ownership: Residual Rights of Control
and Appropriable Control Rights. ( ISBN 87-7873-073-2) 99-5 Foss, K & Foss, N. J: Organizing Economic Experiments: The role of
Firms. (ISBN 87-7873-075-9) 99-6 Jørgensen Kenneth. M. (p) : The Meaning og Local Knowledges. (ISBN
87-7873-076-7) 99-7 Foss, N. J.: Capabilities, Confusion, and the Costs of Coordination: On
Some Problems in Recent Research On Inter-Firm Relations. (ISBN87-7873-
077-5) 99-8 Lund, Reinhard: Tillidsrepræsentantsystemet og de
fleksiblevirksomhedsformer. Juli 1999. (ISBN887-7873-078-3) 99-9 Nymark, Søren: Organisatorisk læring gennem den værdibaserede
organisations fortællinger. (ISBN 87-7873-079-1) 99-10 Laursen, K. & Meliciani, V.: The importance of technology based inter-
sectoral linkages for market share dynamics. (ISBN 87-7873-080-5) 99-11 Laursen, K., Mahnke, V., Vejrup-Hansen, P.: Firm growth from a
knowlegde structure perspective. ( ISBN 87-7873-081-3) 99-12 Lundvall, Bengt-Åke, Christensen, Jesper. L.: Extending and Deepening
the Analysis of Innovation Systems - with Emperical Illustrations from the DISCO-project. (ISBN 87-7873-082-1)
00-1 Llerena, Patrick & Oltra, Vanessa: Diversity of innovative strategy as a
source technological performance. (ISBN 87-7873-085-6) 00-2 Llerena, Patrick & Mireille Matt: Technology policy and cooperation:
A paradigmatic approach. (ISBN 87-7873-086-4) 00-3 Cusmano, Lucia: Technology Policy and Co-operative R&D: the role of
relational research capacity. (ISBN 87-7873-087-2) 00-4 Mikkola, Juliana Hsuan: Modularization assessment of product
architecture. (ISBN87-7873-088-0) 00-5 Yvrande, Anne: The new British railways structure: A transaction cost
economics analysis. (ISBN87-7873-089-9) 00-6 Dijk, Machiel van &Nomaler Önder: Technological diffusion patterns and
their effects on industrial dynamics. (ISBN 87-7873-090-2) 00-7 Storper, Michael & Chen, Yun-chung with De Paolis, Fernando: The
Effects of Globalization on Location of Industries in the OECD and European Union (ISBN87-7873-091-0)
00-8 Sanders, Mark & Weel, Bas ter : Skill-Biased Technical Change:
Theoretical Concepts, Empirical Problems and a Survey of the Evidence (ISBN87-7873-092-9)
00-9 Tomlinson, Mark: Innovation surveys: A researcher’s perspective
(ISBN87-7873-093-7) 00-10 Nymark, Søren: Value-based management in learning organizations through
'hard' and 'soft' managerial approaches: The case of Hewlett-Packard
(ISBN87-7873-094-5) 00-11 Yoguel, Gabriel; Novick , Marta & Marin, Anabel: Production Networks:
Linkages, Innovation Processes and Social Management Technologies (ISBN87-7873-095-3)
00-12 Yoguel, Gabriel & Boscherini, Fabio: The environment in the development
of firms’ innovative capacities: Argentine industrial SMEs from different local systems (ISBN87-7873-096-1)
00-13 Arocena, Rodrigo & Sutz, Judith: Interactive Learning Spaces and
Development Policies in Latin America (ISBN87-7873-098-8) 01-01 Mathews, John A.: Competitive Interfirm Dynamics within an
Industrial Market System ( ISBN87-7873-099-6) 01-02 Giarratana, Marco & Torrisi, Salvatore: Competence accumulation and
collaborative ventures: Evidence from the largest European electronics firms and implications for the EU technological policies (ISBN 87-7873-100-3)
01-03 Nemirovsky, Adolfo & Yoguel, Gabriel: Dynamics of high-technology firms
in the Silicon Valley (ISBN 87-7873-101-1) 01-04 Castellacci, Fulvio: A ‘technology-gap approach to cumulative growth’:
toward an integrated model. Empirical evidence for Spain, 1960-1997 (ISBN 87-7873-103-8)
01-05 Nuvolari. Alessandro: Collective invention during the British industrial
revolution: The case of the Cornish pumping engine (ISBN 87-7873-104-6) 01-06 Costa, Ionara: Ownership and technological capabilities in Brazil (ISBN 87-
7873-105-4) 01-07 Foss, Nicolai J.: Economic organization in the knowledge economy: some
austrian insights (ISBN 87-7873-106-2) 01-08 Cantwell, John & Kosmopoulou, Elena: Determinants of internationalisation
on corporate technology (ISBN 87-7873-107-0) 01-09 Loasby, Brian: Industrial dynamics. Why connection matter (ISBN 87-7873-
108-9) 01-10 Jeppesen, Lars Bo: Making Consumer Knowledge Available and useful (87-
7873-109-7) 01-11 Laursen, Keld: The Importance of Sectoral Differences in the Application of
(Complementary) HRM Practices for Innovation Performance (87-7873-110-0)
01-12 Johnson, Björn & Segura-Bonilla, Olman: Innovation Systems and
Developing Countries: Experience from the SUDESCA Project (87-7873-111-9)
01-13 Foss, Nicolai J. : Bounded Rationality in the Economics of Organization:
Present Use and (Some) Future Possibilities (87-7873-112-7) 01-14 Reichstein, Toke & Dahl, Michael S.: Patterns and Dependencies of Firm
Growth (87-7873-113-5) 01-15 Foss, Nicolai J. : The Problem With Bounded Rationality: On Behavioral
Assumptions in the Theory of the Firm (87-7873-114-3) 01-16 Foss, Nicolai J. : Selective Intervention and Internal Hybrids: Interpreting and
learning from the Rise and Decline of the Oticon Spaghetti Organization (87-7873-115-1)
02-01 Foss, Kirsten; Foss, Nicolai; Klein, Peter G. & Klein, Sandra K.:
Heterogeneous Capital, Entrepreneurship, and Economic Organization (87-7873-117-8)
02-02 Foss, Kirsten & Foss, Nicolai J.: Creating, Capturing and Protecting Value:
A Property Rights-based View of Competitive Strategy (87-7873-118-6) 02-03 Laursen, Keld & Salter, Ammon: The Fruits of Intellectual Production:
Economic and Scientific Specialisation Among OECD Countries (87-7873-119-4)
02-04 Foss, Nicolai J.: The Strategy and Transaction Cost Nexus: Past Debates,
Central Questions, and Future Research Possibilities (87-7873-120-8) 02-05 Arocena, Rodrigo & Sutz, Judith: Innovation Systems and Developing
Countries (87-7873-121-6) 02-06 Lundvall, Bengt-Åke: The University in the Learning Economy (87-7873-
122-4) 02-07 Tomlinson, Mark: The Academic Robotics Community in the UK: Web
based data construction and analysis of a distributed community of practice (87-7873-123-2)
02-08 Lorenzen, Mark & Mahnke, Volker: Global Strategy and the Acquisition of
Local Knowledge: How MNCs Enter Regional Knowledge Cluster (87-7873-124-0)
02-09 Drejer, Ina: A Schumpeterian Perspective on Service Innovation (87-7873-
125-9) 02-10 Dalum, Bent; Pedersen, Christian Ø.R. & Villumsen, Gert: Technological
Life Cycles: Regional Clusters Facing Disruption (87-7873-126-7)
02-11 Foss, Kirsten & Foss, Nicolai J.: Authority and Discretion: Tensions.
Credible Delegation and Implications for New Organizational Forms (87-7378-157-5)
02-12 Bathelt, Harald; Malmberg, Anders & Maskell, Peter: Clusters and
Knowledge: Local Buzz, Global Pipelines and the Process of Knowledge Creation (87-7873-128-3)
02-13 Mahnke, Volker & Venzin, Markus: How do digital information good
characteristics influence pace and modalities of international market entry? (87-7873-129-1)
All correspondence concerning the DRUID Working Papers should be send to:
Aalborg University
Jeanette Hvarregaard Fibigerstræde 4
DK-9220 Aalborg OE Tel. 45 96 35 82 65 Fax. 45 98 15 60 13
E-mail: [email protected]